How’s the market?
The answer to that familiar question changed dramatically between March of this year and the present time. With the pace of Q1 in full swing and looking at high growth, all indicators were pointing to a banner year in real estate. Inventory was up, prices were up, Buyers were excitedly participating in the market at all levels – move up, move down, first time, investment, and the like - and Sellers were eager to see what the market would bring.
All, of course, came to a screeching halt on March 17th, when the state and county SIP orders went into place. What followed for the next 45 days in real estate looked something like this:
March 17: No open houses, No broker tours. No home showings. No staging. No cosmetic upgrading.
Real estate at a standstill.
March 28: Real Estate declared an essential business but still no in person showings allowed. Still no staging, no landscaping services, no cosmetic repairs/upgrades to prepare for marketing.
Real estate trying to continue but limitations hold activity back.
April 1: Home showings of vacant homes allowed, limited to 2 visitors with acknowledged safety standards.
Activity awakens a little as actual showings are permitted to some degree.
May 4th: Home showings expanded to allow visits as long as occupants are not present during the showing. Staging, landscaping and cosmetic construction work allowed.
Buyers and Sellers adapting to the new normal. Inventory starting to climb again.
One can say with certainty that the real estate market was, like numerous other industries, hit hard. The subsequent perception that the market was “down” was legitimate but, at the same time, didn’t necessarily describe exactly what was happening.
Overall, units and activity were indeed down and gave the perception of a down market affecting value. BUT, value actually held.
WHY DID REAL ESTATE VALUES REMAIN RELATIVELY STABLE DURING SIP?
Inventory Levels
Under basic supply and demand principles, a scarcity of goods leads to price increases in those goods.
With the market coming to a halt, existing inventory dropped to the depths of low. Buyers outweighed Sellers, making housing a scarce commodity that was still sought after. Those who didn’t need to sell immediately and stayed on the market were able to withstand price pressure in a suddenly volatile market.
The Concept of Homeownership Gained in Value During SIP.
For various reasons, homeownership got somewhat of a lift during SIP.
1. The relative stability of the housing market made it a more attractive investment vehicle in comparison to the volatility of the stock market .
2. As the entire nation was ordered to “Stay-At-Home” emphasis on home as a place of shelter, work, play, and safety elevated the concept of home to heights never seen before.
3. With 24/7 ability to analyze our surroundings, many began to evaluate their home “needs” (bedrooms, baths, office space, space in general, yards, etc.) and felt the desire to elevate and even, at times, fast-track homeownership priority. Moreover, first time buyers – those not saddled with having to sell a home in order to purchase – are comprising a larger share of the market now at 36%*. With less competition from investors and low mortgage rates, [this buyer segment is rising up and helping to keep market activity moving]. *Realtor.com, May 26, 2020
THE STATS**
**From the California Association of Realtors Economic Report, May 2020
Yes, things were bad:
· Unemployment hit its highest rate ever, over the span of 8 weeks.
· Consumer spending was down 88% year-over-year by April.
· Buyers and Sellers definitely held back on market activity. A forecast of -42% by year end.
But, the real estate numbers held up:
· California’s Median Home price – across the entire state of California – stood at $606,000 by the end of April. UP 0.6% from a year ago and more than double that of the median value during the ’08 Recession where median prices fell below $300,000.
· Buyer sentiment that “it’s a good time to buy a house” outweighed Seller sentiment that “it was time to hold off on selling”, putting more Buyers in the market for scarce goods.
· Bay Area home average sales prices ranged between -2% to +3% YOY, and began rising again in May.
· A report released by the Mortgage Banking Association showed mortgage applications rising in the weeks leading up to May 25th.
· Docusign CEO, Dan Springer, reported on CNBC on April 7th that Docusign did not see a noticeable decline in activity in the real estate sector, unlike travel and hospitality.
WHAT MIGHT WE SEE?
Assuming we 1) continue to make progress on treatment and as restrictions continue to lift and 2) barring a second wave, the following activity is envisioned:
· Following a 28% rise in pending sales for the last month, sales are expected to more than double in gains in Q3 over Q2.
· With mortgage applications rising 5 weeks in a row, Buyers appear to be getting steadily back into the market.
· Traditional Spring selling season will push to a Summer/Fall selling season.
IN SUMMARY, WHY IS HOUSING POISED TO DO WELL IN THE LONG TERM?
Quoting the California Association of Realtors in their Economic Outlook Webinar May 18, 2020:
· Mortgage Rates are low and could even go lower
· Long term benefits of homeownership are still there
· Structural shift/acceleration of recent trends
. More companies to allow remote work
• Remote work = opportunity to buy
. Properly allocate population and supply
· Homes are more important now than ever!
THE BEST IS YET TO COME!